The Impact of Macroeconomic Factors on Pakistan Stock Market Performance

Abstract

This study examines how macroeconomic factors including interest rate, inflation, GDP growth, and currency rate affect Pakistan's stock market where KSE 100 Index returns are considered as the targets of study. The research is over the period June 2004 to May 2024, and looks at the effect of these macroeconomic variables on stocks returns at the time of major economic events and fluctuations in the country. The study uses sophisticated econometric strategies to study the KSE 100 Index returns and dependent and independent factors (interest rate, inflation, GDP growth, and exchange rate). It uses time series analysis and regression models to assess short term as well as long term effects of these variables on market performance. The holders of interest rates as an aspect of monetary policy, are analyzed in relation to the behavior of investors, the role of inflation in determining purchasing power and corporate profitability, as well as the influence of GDP growth on the economic activity, and stock market returns. In addition, it examines the effect of exchange rate fluctuations on foreign investment as well as export-based sectors. The results help to shed light on the macroeconomic environment of Pakistan and to offer empirical evidence on the impact of macroeconomic variables on stock market performance. The varying influence of each factor on stock return is shown and policy interventions are highlighted as important for stabilizing stock market and ensuring the confidence of investors. This study provides useful implications for investors, financial analysts and policymakers thereby suggesting how macroeconomic conditions may inform predictions on the markets and investment strategy.